Zurich Australian Insurance Limited v Wood No. Scgrg-97-775 Judgment No. S6455

[1997] SASC 6455

ZURICH AUSTRALIAN INSURANCE LIMITED v WOOD

Full Court
Coram:  Cox, Duggan and Nyland JJ

Cox J

The respondent was driving his car at Somerton Park on 23 July 1994 when it collided with a stationary vehicle at the kerb and pushed it into another vehicle. The total property damage amounted to about $30 000. The appellant, which was the respondent’s comprehensive insurer, refused to indemnify the respondent because of his blood alcohol reading. The question argued in the District Court was whether the relevant exclusion clause in the policy was void by reason of s47C of the Road Traffic Act 1961. The learned District Court Judge held that it was. The insurer has appealed against that decision.

The appellant’s policy was a typical comprehensive motor insurance policy.  It was divided into two sections, one dealing with loss or damage to the insured’s own vehicle and the other with accidental bodily injury or accidental loss or damage to the person or property of a third party.  Both sections contained an exclusion clause that took effect

"when the driver of the Vehicle has a level of alcohol in the blood in excess of any statutory limit." 

That was the clause upon which the appellant relied.  The respondent issued a summons in the District Court to enforce his claim.  In his Particulars of Claim he described the accident and the damage it caused and continued -

1. At the time of the said collision the plaintiff was the holder of a comprehensive policy of insurance with the defendant which policy indemnified the plaintiff for damage sustained to his Toyota registered (sic) and for damage sustained to the Holden and for damage sustained to the Ford.

8..     Following the said collision the plaintiff duly filled out a claim form with the defendant company claiming indemnity in respect of all loss and damage and in the course of completing the claim form the plaintiff acknowledged that shortly after the subject collision he was breath tested by police and was found to have a blood alcohol reading of 0.104 milligrams of alcohol per 100 millilitres of blood.

1. Subsequent to the defendant’s consideration of the aforementioned claim the plaintiff’s claim was rejected by the defendant on the basis that at the time of the subject accident his blood alcohol reading exceeded the statutory limit.

1. In so rejecting the claim the defendant was in breach of contract and in breach of its statutory obligations to the plaintiff.

PARTICULARS OF THE DEFENDANT’S BREACH OF CONTRACT AND BREACH OF STATUTORY OBLIGATION

1. The defendant was in breach of contract in that it failed to indemnify the plaintiff for loss and damage occurring as a result of the subject accident as was required by virtue of the terms of its policy with the plaintiff numbered 54 0409560 GLG.

1. The defendant was in breach of its statutory obligations in that in rejecting the plaintiff’s claim it purported to rely on terms of the policy which are made void as a result of Section 47C of the Road Traffic Act.

AND the plaintiff claims against the defendant the sum of $30,253.10 together with costs and interest."

The appellant admitted the allegations in paragraphs 7, 8 and 9 of the Particulars of Claim and joined issue on paragraphs 10, 11 and 12.

Section 47 of the Road Traffic Act makes it an offence for a person to drive a vehicle whilst so much under the influence of intoxicating liquor or a drug as to be incapable of exercising effective control of the vehicle. Section 47B makes it an offence for a person to drive a motor vehicle while there is present in his or her blood the prescribed concentration of alcohol which, in the case of the respondent, was 0.5 grams or more of alcohol in one hundred millilitres of blood.

Section 47C of the Act reads -

"(1)  A person is not, by reason only of having been convicted or found guilty of an offence against section 47B(1) or having expiated such an offence, to be taken, for the purposes of any law, or of any contract, agreement, policy of insurance or other document, to have been under the influence of, or in any way affected by, intoxicating liquor, or incapable of driving, or of exercising effective control of, a motor vehicle, at the time of the commission of that offence or alleged offence.

(2)  The provisions of subsection (1) have effect notwithstanding anything contained in any law, or any covenant, term, condition or provision of, or contained in, any contract, agreement, policy of insurance or other document, and a covenant, term, condition or provision purporting to exclude, limit, modify or restrict the operation of that subsection is void.

1. Any covenant, term, condition or provision contained in a contract, policy of insurance or other document purporting to exclude or limit the liability of an insurer in the event of the owner or driver of a motor vehicle being convicted or found guilty of, or expiating, an offence against section 47B(1) is void."

It was a very short trial.  The respondent was the only witness.  He described the circumstances of the accident.  The police came and he had to blow into the breathalyser machine several times.  The last reading was 0.104.  He admitted that he had had a fair few beers before the accident.  Later he was charged with an offence under s47B. 

In his reasons for judgment the learned trial Judge set out the facts and described the issue that he had to decide. He noted correctly that the respondent was charged with an offence under s47B but he was wrong when he said that the respondent pleaded guilty to the offence and was convicted, for neither the pleadings nor the evidence show what the result of his being charged was. This may have led the learned Judge into error in his application of s47C to this policy. His Honour concluded his judgment by saying -

"The acts of the plaintiff here mean that because of this conviction under section 47B it is alleged that his policy provisions mean that he has no right of indemnity.

It is my view such a term is in conflict with the provisions of section 47C(3) and such term cannot be enforced and is void.

I view the statutory provision as stating that liability cannot be denied on the sole criteria of a blood alcohol conviction, and, if it does such provision is void.

The effect of the provision of paragraph 8(c) is that if the insured has a level of alcohol in the blood in excess of the statutory limit then indemnity is not available.  47C(3) is directed to that type of provision and in my view is void.

Consequently, I direct that the plaintiff is entitled to be indemnified under this particular policy for the damage which occurred on the day of this driving on 23 July, 1994."

His Honour’s reasoning appears to be predicated upon the respondent’s conviction although, as I have said, there is no evidence that the respondent was in fact convicted although it may well be that he was.  At any rate his Honour was, in my opinion, reading too much into the section. 

Section 47C is obviously designed to limit the reliance that an insurer may place on the fact that a person has been convicted or found guilty of an offence against s47B or has expiated such an offence. Subsection (1) of s47C provides that he is not to be taken, by reason only of the conviction, to have been in any way affected by intoxicating liquor. The subsection uses, but is not restricted to, the terminology of s47. Typically it strikes at an exclusion clause that makes a conviction under s47B evidence of the defendant’s having been affected by intoxicating liquor at the time of the offence.

Sub-section (2) makes any attempt by the insurer to contract out of subs(1) ineffectual.

Sub-section (3) renders void any term of an insurance policy that purports to exclude or limit the insurer's liability in the event of the owner or driver of a motor vehicle being convicted or found guilty of, or expiating, an offence against s47B(1).  This is the sub-section upon which the respondent relies.  However, the exclusion clause in the appellant’s policy says nothing about the driver being convicted or found guilty of or expiating an offence of the s47B kind.  It has no curial aspect to it at all.  Its sole condition of operation is that the driver had a level of alcohol in the blood in excess of the statutory limit.  That identifies the fact that the insurer has to prove if he wishes to avoid liability under the policy and it has nothing to do with the consequences of any possible prosecution.  A motorist who has an accident when his blood alcohol level is 0.05 or more may for some reason escape prosecution and conviction - indeed, he could be prosecuted and found not guilty - but discover that his insurer can rely successfully upon an exclusion clause of the sort under consideration here.  The insurer may have to surmount some practical problems of proof, but they did not arise in this case because it was common ground that the respondent at the time of his accident had a level of alcohol in his blood that was in excess of the s47B limit. 

There do not appear to be any reported cases directly in point. The learned Judge referred to two Tasmanian decisions, Annear v G.R.E. Insurance Ltd (1987) 5 ANZ Insurance Cases 60-830 and Mazur v Australian Associated Motor Insurers Ltd (1989) 5 ANZ Insurance Cases 60-919, but they dealt with a Tasmanian law that was in significantly different terms from s47C.

Mr Algie, who appeared for the respondent on the appeal, relied on what he submitted was the policy or purpose of s47C, namely, that those who stand as insurers should not be able to avoid their contractual obligations to indemnify simply because of a s47B offence. However, that begs the question. Generally speaking an insurer may offer insurance on such terms as it chooses, and to identify the insurer’s contractual obligations one must look at the policy itself. If its terms are ambiguous or obscure the court may well prefer an interpretation that favours the insured, but it is not suggested that there is anything uncertain about the meaning of this exclusion clause.

Nor, in my opinion, is there any uncertainty about the meaning of subs(3) of s47C. Its terms are clear. The condition of its operation is the circumstance of the owner or driver of a motor vehicle being convicted or found guilty of, or expiating, an offence against s47B(1). It has nothing to say about any other aspect of a person’s relationship with s47B. It may be, as Mr Algie argued, that whatever purpose subs(3) is intended to serve may be too easily avoided by an adroit use of language in drafting an exclusion clause. That depends on the precise identification of the mischief that s47C is designed to cure, and there may be more than one possible view about that. Be that as it may, it would have been very easy for Parliament to have included the mere commission of an offence against s47B in its subs(3) conditions, but it did not do so. (Compare the 1991 amendment to subsections (1) and (3) which extended the original reference, to a conviction only, to the present conviction or finding of guilt or expiation: Road Traffic (Alcohol, Speed and Helmets) Amendment Act, 1991, s6.) If we were to accede to the respondent’s argument we would be amending the sub-section, not interpreting it.

For these reasons, I am of the opinion that the learned Judge was in error when he held the appellant’s exclusion clause to be void.

This was the only issue that was either pleaded or debated in the District Court. However, on the hearing of the appeal Mr Algie made an alternative submission under s54 of the Insurance Contracts Act 1984 (C/w). That section reads -

1. Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection (2) applies, the insurer may not refuse to pay the claim by reason only of that act but his liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer’s interest were prejudiced as a result of that act.

1. Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim.

1. Where the insurer proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.

1. Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.

1. Where:

(a)     the act was necessary to protect the safety of a person or to preserve property;  or

(b)     it was not reasonably possible for the insured or other person not to do the act;

the insurer may not refuse to pay the claim by reason only of the act.

1. A reference in this section to an act includes a reference to:

(a)     an omission;  and

(b)     an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter."

It was put to us that, even if the respondent was in breach of the policy, the appellant had not shown that it was entitled to refuse to pay the claim, either in whole or in part, by reason of one or other of the exclusory provisions of s54, so that the respondent was still entitled to judgment in the sum of $30 253.10 as sought in his Particulars of Claim. It was acknowledged that this was very much a last minute submission, so much so that there was no word of it in Mr Algie’s written outline of argument. Counsel were not in a position to deal with the matter adequately at the hearing and we therefore directed that supplementary submissions be lodged in writing. We have now had the opportunity of considering those submissions.
It is the respondent’s case that subs(1) of s54 sterilizes the operation of the exclusion clause in the policy upon which the appellant relies so that prima facie the appellant is liable to meet the respondent’s claim notwithstanding the policy infringement. So far as subsection (2) is concerned, it was for the appellant to satisfy the District Court that the case could be brought within the exceptive provisions of the subsection and it made no attempt to do that. Indeed, there was no basis on the pleadings or the evidence for any finding on the subject favourable to the appellant. The same may be said of subsections (3) and (4). Mr Algie conceded that the point was not raised in the District Court. However, an appeal court has a discretion to permit a new point to be argued for the first time on the appeal, and this, he submitted, was a case in which the discretion should be exercised favourably to the respondent. The proceedings in the court below had taken only half an hour. They were in substance, if not in form, proceedings for a decision on a preliminary point of law and the respondent was successful. Section 54 does not create a special defence or a particular cause of action that is available to one party or the other. Rather, it states the law that is to be applied by the courts in a situation such as this. The case should be remitted to the District Court so that it may apply s54 to the facts of the case in the light of such further evidence as the parties may wish to call.

The appellant in its supplementary submission conceded that there did not seem to be any legal impediment to the respondent’s reliance on s54 although it submitted that subsection (2) was in point as the respondent’s driving of his vehicle when he had a blood alcohol reading of 0.104 "could reasonably be regarded as being capable of causing or contributing to" the accident which caused the respondent’s loss. However, the respondent (it was said) was bound by his conduct at the trial. He had his opportunity there to present a case in reliance on s54 and he should not be permitted to do that for the first time now. Had s54 been pleaded the appellant would have challenged the respondent’s evidence about the circumstances of the accident and called its own evidence as to the cause of the accident. The learned District Court Judge had made findings on the evidence before him and any further hearing would therefore need to be before a different judge. Alternatively, if the respondent is to be permitted now to run a case based on s54, he should be required to do so by fresh proceedings. The Full Court could direct, if it were minded to allow the present appeal, that such allowance would not be a bar to the respondent instituting fresh proceedings seeking to raise s54 of the Insurance Contracts Act. In that event the appellant should have its costs of the first trial and the appeal and there should be a direction that the respondent be barred from instituting fresh proceedings until he has paid the appellant’s costs.

Section 54 is a difficult section in many respects - see generally Ferrcom Pty Ltd v Commercial Union Assurance Co. of Australia Ltd (1993) 176 CLR 332 and Antico v Heath Fielding Aust. Pty Ltd (1997) 71 ALJR 1210 - and it is not a subject upon which a court would be inclined to make too many unqualified statements without having the benefit of a full argument. We have not had that on certain relevant aspects of the section including the onus of proof and the related question whether it is for the insurer or the insured or indeed either party to plead a reliance on the section. I think there is much to be said for Mr Algie’s submission that s54 states the relevant law to be applied in this situation and that there was certainly no obligation on his client to plead it. Be that as it may, the fact of the matter is that the respondent’s claim was instituted and tried in the District Court on the common understanding that the only issue between the parties was the legal question whether the exclusion clause in the policy was rendered void by s47 of the Road Traffic Act. Plainly the respondent was accepting the position that if he lost the construction point he would lose his case altogether.

The general rule is that a party is bound by the conduct of his case at the trial, and it is only in the most exceptional circumstances that he will be allowed on appeal to raise a new argument which, deliberately or inadvertently, he failed to put during the hearing. See University of Wollongong v Metwally {No. 2] (1985) 59 ALJR 481, Coulton v Holcombe (1986) 162 CLR 1. However, the rule is not absolute. See, for example, Electricity Commission of New South Wales v Yates (1993) 30 NSWLR 351, Doherty v Murphy [1996] 2 VR 553. Every case will stand to be determined on its own facts, with the appeal court bearing steadily in mind the powerful considerations of public policy to which expression was given in the two High Court cases. There is no reason to think that the failure of the respondent to raise the Insurance Contracts Act point in the court below was the result of anything other than ignorance or oversight of a provision which the Court would normally be bound to take into account as a matter of course. As it happened, the respondent got his judgment in the District Court anyway, so it would have simply been a matter of notifying the Court of a fall-back argument which, as it transpired, the Judge would probably have decided he did not need to consider. Because of the Judge’s view of s47c, the trial did not reach the stage at which the respondent’s express or implied reliance or non-reliance upon s54 - in so far as that may be a relevant way to put it - was critical. In my judgment, it would not be unfair to the appellant in the circumstances to require it to defend, even at this stage, its denial of any liability under the policy in the light of s54 of the Insurance Contracts Act. I think it would be unjust to the respondent if we were to enter judgment against him on the basis of an implicit abandonment of a right, that one would ordinarily expect him to assert, for payment of his claim, in whole or in part, in accordance with the law as defined by s54.

For these reasons I would allow the appeal and remit the matter to the District Court. The costs must already be out of all proportion to the amount at stake, but it could be argued that the learned Judge who heard the matter has in his judgment impliedly accepted the respondent’s explanation for the accident and I think the appellant is entitled to have the trial start again before another judge. It will be open to the parties to call such relevant evidence on the s54 issue as they see fit.

In my opinion, then, the appeal should be allowed, the order of the District Court set aside and the matter remitted to that Court for rehearing.  I would hear counsel on the question of costs.

Duggan J

In my view this appeal should be allowed for the reasons given by Cox J.  I also agree with the orders proposed by Cox J.

Nyland J

For the reasons expressed by Cox J I agree that the learned trial judge erred in holding the appellant’s exclusion clause to be void.  I further agree that the appeal should be allowed and the matter remitted to the District Court on the basis set out by Cox J in his reasons.